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We explore the crucial research question of whether the rollover risk effect amplifies or reduces a firm’s extreme risk through an empirical investigation of the Taiwanese manufacturing industry. We also investigate the relationship between corporate policy and extreme risk. On the basis of extensive empirical evidence from 2003 to 2014, we determine significant positive impacts on extreme risk for firms with difficulty in rolling over their maturing debts. Firms with higher investment levels in a financial crisis should consequentially have more tail risk spillover from the financial sector.

We study the effect of rollover risk on the risk of default using a comprehensive database of U.S. industrial firms during 1986-2013. Dependence on bank financing is the key driver of the impact of rollover risk on default risk. Default risk and rollover risk present a significant positive relation in firms dependent on bank financing. In contrast, rollover risk is uncorrelated with default probability in the case of firms that do not rely on bank financing. Our measure of rollover risk is the amount of long-term debt maturing in one year, weighted by total assets. In the case of a firm that depends on bank financing, an increase of one standard deviation in this measure leads to a significant increase of 3.2% in its default probability within one year. Other drivers affecting the interaction between rollover risk and default risk are whether a firm suffers from declining profitability and has poor credit. Additionally, rollover risk's impact on default probability is stronger during periods when credit market conditions are tighter.